Proportionate liability – the landscape has changed

  • Author : Travis Mitchell - 04-04-2013

The High Court’s decision in Hunt & Hunt Lawyers v Mitchell Morgan Nominees [2013] HCA 10 changes the landscape for proportionate liability claims. The requirement that claims be for the ‘same damage,’ is now significantly easier to satisfy.

In Hunt & Hunt, a borrower fraudulently executed a loan agreement and mortgage, forging the signature of his co-borrower. Mitchell Morgan advanced $1 million under the agreement and registered the mortgage. The loan agreement was held to be void because of the forged signature. The registered mortgage had the benefit of indefeasibility, but had been negligently drafted by Hunt & Hunt: it did not secure an obligation to repay a certain sum. It only secured indebtedness by reference to the void loan agreement. After the agreement fell, so too did the mortgage.

Previously, the leading authority on whether two claims were for the 'same damage', and thereby enlivened the proportionate liability scheme was the decision of St George Bank Ltd v Quinerts Pty Ltd (2009) 25 VR 666.


 

In Quinerts, the Bank lent money on the faith of a negligent overvaluation of a property. After the borrower defaulted, the Bank enforced its security and was left with a shortfall. The Bank sued the valuer in negligence. Quinerts admitted the negligence but alleged the borrower and guarantor were concurrent wrongdoers.

Nettle JA (with whom Mandie JA and Beach AJA agreed) rejected the argument because the claim against each putative wrongdoer rested on a different causal basis. At [76]:

“The loss or damage caused by the borrower and the guarantor was their failure to repay the loan. Nothing which Quinerts did or failed to do caused the borrower or the lender to fail to repay the loan. The damage caused by Quinerts was to cause the bank to accept inadequate security from which to recover the amount of the loan. Nothing which the borrower or the lender did or failed to do caused the bank to accept inadequate security for the loan.”

That analysis has been rejected by a majority of High Court in Hunt & Hunt. French CJ, Hayne and Kiefel JJ held that Nettle JA should not have taken causation into account in this way.

Instead, the focus of the Act is on the proper identification of the loss or damage suffered. Here, it was the inability to recover the funds advanced. Once it is accepted that the one loss may have multiple causes, a broader definition of “the same damage” must be applied.

The majority held that Mitchell Morgan’s inability to recover the amount it advanced was caused by the negligently drafted mortgage, but also, and independently, by the conduct of the fraudsters who took the funds advanced. The Court reinstated the trial judge’s finding that Hunt & Hunt’s proportionate liability was only 12.5% of the total loss.

The ramifications of this decision are likely to be significant in professional liability disputes, and in particular, building disputes. Some of the previous constraints on proportionate liability have been eradicated. There is now greater scope for builders, engineers and architects to point fingers at each other.

And as a rule, that makes building disputes more costly and more difficult to settle.

About the Author

Travis Mitchell

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